Recent Posts

The Gold Report: In a February
interview with The Gold Report, you
said, "We're in the midst of a 15- to 20-year mega-supercycle for
gold and gold equities." You predicted $1,500/oz. gold prices and
that gold would move higher through 2015 or 2020. Do you still
believe that to be the case?

David Skarica: $1,500 was hit. Yes, nothing has
changed my long-term view. These cycles usually move in 15- to
20-year periods. If you look at gold bottoming in 2001 or 1998,
depending on your view, you can see we at the very least will
move higher in 2013 and more probably into 2015 to 2020. The
fundamentals back it up as the problems with unfunded liabilities
and the U.S. deficit will continue to put long-term pressure on
the dollar and upward pressure on gold.

DS: We are seeing inflation. However, we have
yet to see big spikes in interest rates. On the inflation front,
the U.S. government is probably the biggest group of liars in the
world when it comes to reporting inflation. If you look inside
the metrics, the calculations they use are all designed to keep
inflation as low as possible. Housing also has not been adjusted
for the recent bust and is very over weighted in the Index. It is
about the only thing not going up at the moment. In addition, the
U.S. is about the only country in the world that just uses core
prices. I find it interesting at the moment that everywhere in
the world from China to India to the U.K. to the Eurozone is
reporting higher inflation, but the U.S. has no inflation
worries! Gap recently had terrible earnings due to increases in
costs from commodities and costs that the Chinese had to pass
on.

However, the problem on the rate front is that the Federal
Reserve is manipulating the market through their QE program. They
are the majority of the long-term bond market and a bit of the
short-term bond market. Even when QE2 ends, they will just rotate
the $1.2 trillion of securities they put into the market the past
two years back into the bond market. I call it QE infinity. That
money is never coming out. Now, at some point rates will spike as
debt approaches near-Greece levels. However, because they have
bought so many of their own bonds, it looks like reality will
take longer than I initially thought to hit, but it will have an
impact eventually.

TGR: What impact will economic instability in
Europe, the Arab Spring and the specter of a new IMF chair have
on gold prices?

DS: Firstly, let me get something out of the
way. The United States is a bigger economic basket case than
Europe. The entire European debt crisis is way overblown. Places
like Portugal, Ireland and Greece are tiny. They would be the
equivalent of Rhode Island and Alabama going under; that wouldnt
exactly take down the U.S. economy. In addition, Europe has such
a bloated social welfare system that it can easily cut these
expenditures. Also, Europeans, unlike Americans, are willing to
pay taxes for government services. However, Europes policy of
printing money to take care of some of these problems is another
positive factor for gold.

Conflict in the Middle East is positive because gold is a flight
to safety during times of turmoil. Also, problems in the Middle
East cause oil to go out, which is inflationary and positive for
gold.

The new IMF chair is irrelevant; one empty suit replaces
another.

TGR: In recent trading, gold and the dollar both
trended higher, how does that fit with your model that gold gains
when the dollar tanks?

DS: Gold can trade up with the dollar. It did in
2005. The problem we have at the moment is no paper currencies
are very solid. The dollars recent gains have more to do with
Euro weakness. When people overblow the Euro debt crisis, the
result is a rush to gold. The same dynamic can cause the dollar
to rally up against the Euro. In the long term, the big trend for
the gold cycle is the U.S. debt crisis and the printing of money
to inflate its way out. Even if the dollar doesnt eventually
drop against the Euro, it will devalue against real assets such
as gold, oil and other commodities.

TGR: In your blog, www.addictedtoprofits.net, you talk about the
cycles that impact gold prices. Where are we in the current cycle
and what can we expect next?

DS: The next part of the cycle is going to be
very interesting, in my opinion. Because of the 2008 market and
gold price crash the fact that everything rebounded together from
2009 to 2011, people think that gold moves with the market.
However, I really think the next bear market in U.S. stocks will
be caused by the weakening of the dollar and inflationary
pressures. Therefore, I expect a situation where bonds go down in
price, stocks overall go down in price and gold and gold stocks
go up. In addition, I think that once people see that precious
metals are the only game in town, this will allow the sector to
attract more money.

TGR: In that February interview, you were
bullish on small caps in general. What companies are you watching
now in that space?

DS: I really like Tinka Resources Ltd. (TSX.V:TK; Fkft:TLD;
Pksheets:TKRFF), a small exploration company in Peru that is
in the midst of drilling. I was in Peru last August and met with
the head geologista real old-school Peruvian who spent the 1980s
risking his life by prospecting in the middle of a brutal
revolution. Today, the stock trades around $0.50.

I also like Pebble Creek Mining Ltd.
(TSX.V:PEB). They are developing their Indian copper project
in the Himalayas. Things have gone slowly and they have had some
management problems. However, the stock trades at $0.10 and there
is virtually no downside, especially in a company that is
expecting to go into production in the coming years.

TGR: You talked about Aberdeen International Inc.'s (TSX:AAB) role as a
merchant bank that allows investors to have exposure to a number
of gold and resource companies. Is their stock price representing
their value yet?

DS: The blunt answer is no. Aberdeen continues
to trade at a huge discount to their net asset value (NAV). The
stock is trading at $0.80 as I write and the last report had
their NAV at $1.37. So, you are getting the stock at around 60%
of what it is actually worth. In addition, they recently
announced a biannual dividend of $0.01 a share. That may not
sound like a big deal. However at $0.80, that is a yield of 2.5%.
So, you can buy a great company at a 60% discount to its NAV,
which has huge upside potential and get more than what you get on
10-year U.S. Treasury bond in terms of yield.

TGR: Any other tips on companies to look at that
might take advantage of the macroeconomic cycles pressuring stock
prices?

DS: I would really look at Peruvian or Indian
stocks here. Both have been whacked for different reasons. India
gets hit because of worries over inflation and rising rates. Peru
is neglected because of worries over the recent election where
the socialist candidate was leading. However, it looks like
Fujimori, the right-of-center, more business-friendly candidate,
is now neck and neck in the runoff polls. If she wins, Peruvian
stocks will probably rise quickly from their current
levels.

At the tender age of 18, David Skarica became the youngest
person on record to pass the Canadian Securities Course. Skarica,
a Canadian and British citizen, is the author of Stock Market Panic! How
to Prosper in the Coming Bear Market (1998), which provided
thought-provoking arguments on why a great bull market would end
in the most vicious bear market of all history. He is also the
author of The Contrarian Who Saved
the World, which explains how markets work. His new book,
The Great Super Cycle:
Profit from the Coming Inflation Tidal Wave and Dollar
Devaluation, was published by John Wiley & Sons in
November 2010.

In 1998, Skarica started Addicted to Profits, a newsletter focused
on technical analysis and psychology of markets. From 2001 to
2003, Stockfocus.com ranked Addicted to Profits third
out of over 300 newsletters in terms of performance. He is also
the editor of Gold Stock Adviser and The
International Contrarian services, which focus on gold and
global investing. Dave has also been a contributing editor
to Canadian MoneySaver and Investor's Digest of
Canada.

Want to read more exclusive Gold Report interviews like
this? Sign up for our free e-newsletter,
and you'll learn when new articles have been published. To see a
list of recent interviews with industry analysts and
commentators, visit our Exclusive Interviews page.

DISCLOSURE:
1) JT Long of The Gold Report conducted this interview.
She personally and/or her family own shares of the following
companies mentioned in this interview: None.
2) The following companies mentioned in the interview are
sponsors of The Gold Report: Aberdeen
International.
3) David Skarica: From time to time, Streetwise Reports LLC and
its directors, officers, employees or members of their families,
as well as persons interviewed for articles on the site, may have
a long or short position in securities mentioned and may make
purchases and/or sales of those securities in the open market or
otherwise.